Accident, unable to file due to, 140 Accrual rules (interest), 109-10 Adjusted cost base, 91 of interest in partnership, 179-80 Administration, Chapter 9 Adoption expenses, 22, 239-40 Advisers, see Professional advisers Age credit, 299 Aggressive tax planning, 117 Agreement shareholders, 217-18, 323 Agriculture, see Farming AgriInsurance, 224-25 AgriInvest, 224-25 AgriRecovery, 224-25 AgriStability, 224-25 Alimony and maintenance, see Spousal support Allowable business investment losses, 94-95 effect on capital gains exemption, 94, 97 Alter ego trust, 315, 317-18 Alternative Minimum Tax, see Minimum tax Americans, see United States Amnesty, see Voluntary disclosure Annuity charitable insured, 129 excess income and TFSA, 303 purchased with RRSP funds, 301, 302-03 Anti-avoidance rules attribution rules, 76-81 general, Foreword, 81 RRSPs and TFSAs, 57-58, 65 Appealing an assessment deduction for legal fees, 32-33 Federal Court of Appeal, to, 143 Notice of Objection, 141-42 payment of amount in dispute, 143-44 Supreme Court of Canada, to, 143 Tax Court of Canada, to, 142-43 waiver of time limit for reassessment, 139-40 Appropriation of property by shareholder, 214-15 Architect, see Professionals Art, donation of, 126-27, 128, 242 Artist s expenses, deduction for, 161 Arts credit, 21-22 Assessment of tax, 138 partnership, 180 quick assessment, 138 reassessment, 139-40 Asset allocation, 5-7 Asset sales, planning, 292-93 Assistant salary of, deductible for employee, 159-60 Attribution rules anti-avoidance rules, 76-81 children over 18, 80 children under 18, 78-80 loans for interest, 76-78, 80 loans to family members, 80 planning tips, 81-87, 299 reinvested income, 83-84 spouses/partners, 76-78 transfer for fair market value, 84 U.S. citizens, 263-64 U.S. property, 286 Audit by CRA, 138-39 Author s expenses, deduction for, 161 Automobiles, Chapter 12 advance, 188-89 allowance, 188-89 business expenses, 193-94 company car, 186-89 company car taken home at night, 189 deductible as business expense, 193-94 343 KPMG_E_2014.indb 343
KPMG Tax Planning for You and Your Family 2014 deductible as employee expense, 190-92 employment benefit, 186-89 environment-friendly (Quebec), 247 GST rebate, 192-93 loan from employer, 149-51 log book, 185-86 operating cost benefit, 187-88 Quebec rebate, 247 standby charge, 186-87 Avoidance of tax, Foreword; see Anti-avoidance rules Award from employer, 146 Bank account, reporting of foreign (U.S.), 266-67 Basic personal credit, 17 Benefits CPP, assignment of, see Canada Pension Plan Child Disability Benefit, 9, 19 Child Tax Benefit, 9, 18-19 EI, clawback of, see Employment insurance employment, see Employees: benefits integrated pension, 300 pension, vesting of, 60 Bequests, see Charitable donations; Death Boarding school expenses, 19, 20 Bonds accruing income on, 110 Canada Disability Savings Bonds, 74 Bonus accruing, for deferral purposes, 211 from employment, see Salary Budgets approaching retirement, 291 personal and family, 3-4 Building rental expenses documentation needed (Quebec), 246 Business (see also Corporation, Professionals) automobiles, 193-94 calculation of income, 168 capital cost allowance, 173-75 capital gains, 178 entertainment, limitation, 175-76, 244 expectation of profit, 180, 221-22 farming, 221-22 incorporation, 182-84 investment tax credits, 178 losses, 180-81 meals, limitation, 175-76, 244 partnership, see Partnership rental losses, 181-82 sale of, 219-20 succession of, 322-23 year-end, 167 CCA, see Capital cost allowance CDSB, see Canada Disability Savings Bonds CDSG, see Canada Disability Savings Grants CNIL, see Cumulative net investment loss CPP, see Canada Pension Plan Camp expenses, 19, 20 Canada Revenue Agency publications, see end of each chapter Canada Disability Savings Bonds, 74 Canada Disability Savings Grants, 74 Canada Education Savings Grants, 8, 69-71 Canada Pension Plan assignment of benefits to spouse, 297 benefits, 295-97, 299 benefits received by U.S. resident, 298 contributions, credit for, 33-34 death, 296-97, 326 planning, 295-97 self-employed persons, 168-69 344 KPMG_E_2014.indb 344
Canada-U.S. tax treaty, 254, 273-75, 277, 278 residency, 273-75 U.S. estate tax, 280-87 U.S.-source income, 276 Canadian securities election, 91 Capital meaning of, 89-91 repayment of, 112-13, 213 Capital cost allowance, 173-75 Capital dividends, 85, 107-08, 212 Capital gains, Chapter 6 basic rules, 89-91 business, of, 178 crystallizing, 96, 208-09 cumulative net investment loss, 97-98, 246 death, on, 101, 328-30 emigration, on, 200-03 exemption, 95-98, 183, 225-26, 260 farming property, reserve on sale of, 227 foreign exchange, 260 immigration, 198-99 inclusion rate, 91-92 investment in small business, 100-01 multiplying access to exemption, 209 non-arm s length transfer, 101 options, 102 partnership, of, 179-80 personal-use property, 101-02 pre-1972 property, 102, 260 principal residence, 99-100, 261 qualified farm and fishing property, 96-97, 225-27 qualified small business corporation shares, 95-96, 208-09 reserves, 98-99, 227 self-employed person, of, 178 small business investment, 100-01 U.S. citizens, 259-62 Capital losses, 93-95 allowable business investment losses, 94-95 carryback and carryforward, 93 deducted against regular income, 94-95 inclusion rate, 93 superficial loss, 102 U.S. treatment of, 259-62 Car, see Automobiles Caregiver credit, 27, 241-42 Carryback, see Carryforward Carryforward and carryback allowable business investment losses, 94-95 business losses, 180-81 farming losses, 225 legal fees for retiring allowance or pension benefit, 160 limited partnership losses, 117-18 minimum tax, 118-21 net capital losses, 93 non-capital losses, 180-81 Carrying charges, see Interest: expense deduction RRSP fees, 47 Carryover, see Carryforward Cash flow statement, 4, 291 Cash method for farmers, 223 Cemetery arrangements, pre-paid, 323-24 Charitable donations or gifts, Chapter 8 artwork, 126-27, 128, 242 credit for, 123-25 Crown gifts, 126 cultural property, 128 first-time donor s super credit, 124-25 in will, 125 life insurance, of, 128-29 personal-use property, 101-02 property, of, 126-27 residual interest, of, 129 shares, of, 126-28 345 KPMG_E_2014.indb 345
KPMG Tax Planning for You and Your Family 2014 U.S. citizens, 258-59 Charitable insured annuity, 129 Charitable remainder trust, 129-30 Child assistance payments (Quebec), 238 Child Disability Benefit, 9, 19 Child Tax Benefit, 9, 18-19, 87 Child Tax Credit, 18 Children adoption expenses, 22, 239-40 arts credit, 21-22 attribution rules, 78-79, 263-64 Canada Education Savings Grants, 8, 69-71 child assistance payments (Quebec), 238 child care expenses, 19-21, 87, 238-39 Child Disability Benefit payments, 9, 19 child support, 27-29 Child Tax Benefit payments, 9, 18-19, 87 Child Tax Credit, 18 consulting fees to, 82, 215 disabled, 9, 19, 19-21, 25-26, 27 education, financial planning for, 8-9, Chapter 4 eligible dependant credit, 17-18 employment income of, 9-10, 86 fitness credit, 21 gifts to, 78-80 income-splitting tax on certain income of, 79-80 investment strategies for, 9-10 loans to, 9-10, 78-80 RDSPs, 73-74 RESPs, 8, Chapter 4 RRSPs of, 9 salary to, 82, 215 taking over your business, 322-23 trust for, 313-17 U.S. dependant deduction, 263 U.S. generation-skipping tax, 270-71 Universal Child Care Benefit, 9, 19, 87 youth activities credit (Quebec), 239 17th birthday, 86 18 and older, 80, 86, 87 Clawback EI benefits, 34 Old Age Security, 297-98 Clearance certificate deceased s payment of taxes, 330-31 emigrant s sale of principal residence, 203-04 Clothing required for employment, 146 Club dues paid by employer, 146 paid by partnership, 232 College fees, 22-23 Commission sales person expenses deductible, 159 Common-law couples opposite-sex, 18 same-sex, 18 Company car, see Automobiles Computers capital cost allowance, 174 supplied by employer, 146 Consultant, distinguished from employee, 165-67 Contractor, distinguished from employee, 165-67 Convention expense, 178 Corporation (see also Business; Shares) capital repayment, 213 corporate partnership, 216-17 dividends, see Dividends extracting funds from, 209-15 incorporating a small business, 182-84 investment income earned by, 218-19 limited liability (U.S.), 278 professional, 230 salary to shareholder, 211 346 KPMG_E_2014.indb 346
salary/dividend mix, 215 shareholder appropriation, 214-15 shareholders agreement, 217-18, 323 single purpose, 285 tax rates, 208 taxation of, 207-09 U.S., shares of, 278, 280 U.S. citizens owning, 280 Cost-of-living payment, 198 Counselling services provided by employer, 146 Coupons, from bonds, 110 Court appeal, see Appealing an assessment Credits, Appendix II adoption expenses, 22, 239-40 age, 299 arts (children), 21-22 Canada Pension Plan contributions, 33-34 caregiver, 27, 241-42 charitable donations, 123-25, 242 child care expenses (Quebec), 238-39 Child Tax Credit, 18 dependants, 17-18, 236-37 disability, 25-27 distinction between credit and deduction, 16-17 educational, 22-25 effect on provincial tax, 17 eligible dependant, 17-18 employment, 158 Employment Insurance premiums, 33-34 environment-friendly vehicle (Quebec), 247 experienced workers (Quebec), 245 family caregiver, 27 first-time donor s super credit, 124-25 fitness (children), 21 GST credit, 34 home support for elderly persons (Quebec), 241 infertility treatment (Quebec), 239-40 interest paid on student loans, 24, 240 medical expenses, 29-31, 242-43 pension income, 299 person living alone (Quebec), 237 personal, 17 political contributions, 31, 242 public transit pass, 31-32 QST credit, 247 related adults, caregiver of (Quebec), 241-42 solidarity (Quebec), 247 spousal/partner, 17-18 tax credits transferred to spouse/ partner, 17, 108 tuition fees, 22-23, 240 volunteer firefighters, 158-59 youth activities (Quebec), 239 Crown gifts, 126 Crystallizing capital gains exemption, 96, 208-09 Cultural property, donation of, 126-27, 128 Cumulative net investment loss, 97-98, 246 Customer loyalty points employment benefit, 146 Day care expenses, 19-21 Death, see Chapter 22 benefits paid by employer, 331 CPP/QPP survivor s benefit, 296-97, 326 capital gains on, 101, 328-30 cemetery arrangements, pre-paid, 323-24 clearance certificate, 330-31 deemed disposition on, 101, 328-30 estate freezing, 318-20 estate taxes, 269-70, 280-87, 332 347 KPMG_E_2014.indb 347
KPMG Tax Planning for You and Your Family 2014 executor and estate trustee, 309-10, Chapter 22 family law, 308-09, 311, 325 funeral arrangements, pre-paid, 323-24 gift tax, 268-69, 270-71, 287 life insurance, 12-13, 113-14, 286, 320-21 probate fees, 311-13, 316, 317, 325 RRSP planholder, 51, 331-32 rollover to spouse or spousal trust, 328-30 succession of your business, 322-23 TFSA, 65, 327, 332 tax returns, 327-28, 330 taxes on, 326-27 will, 13, 308-09, 325 Deductions, 16-17 business, see Business: calculation of income child and spousal support, 27-29, 247 child care expenses, 19-21, 87, 238-39 disability supports deduction, 26 distinction between deduction and credit, 16-17 interest expense, 3, 110-11 legal fees, 32-33 moving expenses, 195-98 northern residents, 33 overseas employment (Quebec), 245 U.S., 254-55, 263 Deemed dividend, 214 Deferred compensation, 155-57 profit sharing plan, 155-56 retirement compensation arrangement, 156-57 salary deferral arrangement, 155 supplemental retirement plan, 156 top-hat retirement plan, 156 U.S., 255-57 Deferred profit-sharing plan, 61 Dental plan employee, 145 self-employed, 177 Departure tax, 200-02 Dependants, 17-18 Quebec residents, 236-39 U.S. citizens, 263 Depreciation, see Capital cost allowance Direct Deposit, 136 Disability, person with Canada Disability Savings Bonds, 74 Canada Disability Savings Grants, 74 caregiver credit, 27, 241-42 credit for, 25-26, 243 disability supports deduction, 26 Home Buyers Plan, 26-27 Registered Disability Savings Plans, 73-74 Disaster missed deadline due to, 140 relief for farmers, 224-25 Disclosure requirements foreign investment property, 114-15 U.S., 266-67, 270 Dividend reinvestment plan (DRIP), 108-09 Dividend tax credit, 79, 106-07, 108, 209-10 Dividends, 105-09, 209-10 capital dividend, 85, 107-08, 212 deemed, 214 how taxed, 106-07 intercorporate, 108 Quebec taxation of, 235-36 received by minor child, 79-80 reinvestment plan, 108-09 stock dividend, 107 transfer from spouse, 108 U.S. citizens, 257 U.S. corporation, 278 348 KPMG_E_2014.indb 348
Divorce, 27-29 deduction for legal fees, 28, 32-33, 247 Donations, see Charitable donations, Chapter 8 Drought-induced livestock sales, 224 Drug plan, see Employees: benefits Earned income, 38-39 exclusion (U.S. citizens), 251-52 for child care expenses, 20 for RRSP, 38-39 partner, of individual, 232-33 Education credit, 23 EFILE, 132-33, 138, 139 Elderly persons, credit for home support (Quebec), 241 Elections Canadian securities to be capital, 91 emigration, on, 202 late-filing, amending or revoking, 140 preferred beneficiary, 315 transfer dividends from spouse, 108 underwater stock option, 152-53 Electronic tax filing, 132-33 Electronic tax payments, 136 Eligible dependant credit, 17-18 Emergency fund, 12 Emigration from Canada, 199-205 capital gains exemption, 202 ceasing Canadian residence, 199-200 clearance certificate, 203 departure tax, 200-02 Home Buyers Plan, 204-05 Lifelong Learning Plan, 204-05 principal residence, 203-04 RESPs, 205 RRSPs, 204-05 reporting for property over $25,000, 202-03 Employee profit-sharing plan, 155-56 Employees, Chapter 10 automobile, 185-93 benefits, 145-48 death, 331 deductions, 159-62, 190-92 assistant s salary, 159-60 automobile expenses, 190-92 commission sales person s expenses, 159 GST rebate, 34-35, 162, 192-93 home office, 159-60 overseas employment, 158, 245 supplies, 159-60 travelling expenses, 159 deferred compensation, 155-57 distinction from independent contractor, 165-67 employment credit, 158 health insurance, 145, 177 home purchase loan, 150-51 life insurance, 148 loans to, 149-51 moving allowance, 197-98 non-taxable benefits, 145-47 Northern Canada, 161-62 overtime meals, 147 phantom stock plan, 154-55 phased retirement, 294-95 profit-sharing plan, 155-56 retirement compensation arrangement, 156-57 salary deferral arrangement, 155 share appreciation rights, 153-54 stock bonus plan, 154 stock option plans, 151-55 stock purchase plan, 154 supplemental retirement plan, 156 taxable benefits, 147-48, 186-89 tools, deduction for, 161 top-hat retirement plan, 156 underwater stock options, 152-53 U.S. citizen transferred to other country, 252-54 349 KPMG_E_2014.indb 349
KPMG Tax Planning for You and Your Family 2014 U.S., working in, 275-77 Working Income Tax Benefit, 158 Employment, see Employees Employment insurance benefits clawback, 34 not available to self-employed, 168 premiums, credit for, 33-34 Employment tax credit, 158 Entertainment, limitation on expense, 175-76, 244 Estate freezing, 318-20 Estate planning, Chapter 21 (see also Death) Estate returns, 327-28, 330 Estate taxes, 269-70, 280-87, 303-05, 332 planning, 283-87, 310-11 Estate trustee, see Executor Estimated taxes (U.S.), 265-66 Executor (of will), Chapter 22 clearance certificate, 330-31 post-mortem planning, 326 probate, applying for, 325 RRIF of deceased, 331-32 RRSP of deceased, 331-32 selection of, 309-10 tax returns of deceased, 326-27, 330 tax returns of estate, 327-28 Exempt life insurance contract, 113-14 Exemption capital gains, see Capital gains: exemption principal residence, see Principal residence exemption Expatriating, from U.S., 271-72 Experienced workers credit (Quebec), 245 FIRPTA (U.S. withholding tax on real estate), 278-79 Fairness rules, 140 Family allowance, see Child Tax Benefit Family caregiver credit, 27 Family law, 308-09, 311, 325 Family trusts, 313-17 Farming, Chapter 15 business risk management programs, 224-25 calculation of income, 223-25 capital gains exemption, 96-97, 225-26 cash method, 223 chief source of income, 221-22 drought-induced sale of livestock, 224 inventory valuation, 223-24 investment tax credits, 178 losses, 221-22, 225 partnership, 227-28 reserve, 227 transfer of property to children, 226-27 whether a business, 221-22 Federal Court of Appeal, appeal to, 143 Filing return, see Tax return Financial disclosure requirements emigrants, 202-03 foreign investment property, 114-15 U.S., 266-67, 270 Financial planning, Chapter 1 (see also Retirement planning) budgets, 3-4, 291 buying a home, 10-11 (see also Home) education funding, 8-9, 22-25 emergency fund, 12 financial goals, 8-12 defining, 2 financial security, 12-14 insurance, see Insurance, Life insurance investment strategy, 5-7, 292 line of credit, 12 net worth statement, 3, 291 pay yourself first plan, 4 professional advisers, selecting, 14 350 KPMG_E_2014.indb 350
vacation property, 11-12, see also Vacation property will planning, 13, 308-09 Fishers capital gains exemption, 96-97, 225-26 reserve, 227 transfer of property to children, 226-27 Fitness credit, 21 Foreign content, RRSP, 46-47 Foreign earned income exclusion (U.S.), 251-52 Foreign estate taxes, 269-70, 280-87, 332 Foreign exchange gains or losses, 260 Foreign investment entity (FIE), 115 Foreign investment property, disclosure, 114-15, 132 held by RRSP, 46-47 Foreign tax credit, 79, 252-54, 281 Freezing an estate, 318-20 Frequent-flyer plan, 146 Funeral arrangements, pre-paid, 323-24 GAAR, see General anti-avoidance rule GST, see Goods and Services Tax Gay couple, see Same-sex couple General anti-avoidance rule, Foreword, 81 Generation-skipping tax (U.S.), 270-71 Gift by will, 308-09 capital gain on, 102 charitable, see Charitable donations tax on, U.S., 268-69, 270-71, 287 to child, attribution rules, 78-80 to employee, whether taxable, 146 to museum or gallery, see Charitable donations to spouse, attribution rules, 76-78 U.S. reporting rules, 270 Goods and Services Tax (GST), 169-73 credit on income tax return, 34 employees, rebate, 34-35, 162 Harmonized Sales Tax, 170-71 input tax credits, 169-70 partnerships, 34-35, 180 Quebec version, 247 Quick Method of accounting, 171-73 real estate, 170 rebate, 34-35, 162, 180, 192-93 small businesses, 171-73 streamlined accounting, 171-73 Grants Canada Disability Savings Grants, 74 Canada Education Savings Grants, 69-71 Green card holder (U.S.), 271-72 Group accident plan, paid by employer, 145 Group health plan, paid by employer, 145, 243-44 Harmonized Sales Tax (HST), 170-71, see also Goods and Services Tax Health contribution (Quebec), 246 Health insurance plan, self-employed, 177 Health insurance provided by employer non-taxable benefit (federal), 145 private plan, 145 public, taxable benefit, 148 taxable benefit (Quebec), 243-44 Health Services Fund contribution (Quebec), 246 Hobby farms, 221-22 Holding company, 216 U.S. investments in, 284-85 Home, see also Home Buyers Plan credits, 32 financing, planning tips, 10-11 first-time buyer, 32 mortgage, 10-11, 67, 290-91 office in, 159-60, 176-77, 244 provided by employer, 146 purchase loan from employer, 150-51, 213-14 351 KPMG_E_2014.indb 351
KPMG Tax Planning for You and Your Family 2014 renting after emigration, 203-04 reverse mortgage, 293 sale, see Principal residence exemption sale after emigration, 203-04 support for elderly persons, 241 Home Buyers Plan (RRSP), 10-11, 26-27, 53-57, 204-05 emigration, 204-05 person with disability, 26-27 planning tips, 56-57 Home support for elderly persons (Quebec), credit for, 241 Hospital fees, credit for, 29-31, 242-43 Husband, see Spouse/partner IPP, see Individual Pension Plan IRA, see Individual Retirement Account ITIN, see Individual Taxpayer Identification Number (U.S.) Illness, missed deadlines due to, 140 Immigration to Canada, 198-99 Income from business, see Business from employment, see Employees from U.S. sources, 275-78 net, 15 sheltering, see Tax shelters splitting, Chapter 5, 9, 263-64, 299 splitting tax, 79-80 taxable, 15 Income funds and trusts, 112-13, 118, 258 Income splitting, see Chapter 5, 183, 263-64, 297 Incorporating a business, 182-84 Incorporating investments, 218-19 Independent contractor, distinguished from employee, 165-67 Indirect payments, 76 Individual Pension Plan, 60-61 Individual Retirement Account (U.S.), 255-57 Individual Taxpayer Identification Number (U.S.), 275 Infertility treatment (Quebec), 239-40 Inheritance taxes, 267-68, 269-70, 328-30 Input tax credits, for GST/HST, 169-70 Instalments Canada, 134-36 Quebec, 236 U.S., 265-66 Instruments (musical), deduction for, 161 Insurance (see also Life insurance) adequate coverage, 12-13 retiree, 293-94 Intercorporate dividend normally tax-free, 108 Inter vivos trust, 314-15, 317-18 Interest accrual rules, 109-10 attribution, see Attribution rules earned by corporation, 218-19 expense deduction, 3, 110-11 family loans, 76-79 income, 109-11 late payment of tax, on, 137-38 paid, deduction for, 110-11 paid on automobile, 191, 193-94 prescribed rate, 137-38 refund, on, 137-38 reinvestment of, 83-84 shareholder loans, 213-14 spousal loans, 76-78, 83 student loans, 24, 240 U.S. corporation, 278 Internet filing tax return by, 132-33 paying tax by, 136 Inventory purchases for farmers, 223-24 Investment in small business, capital gains rollover, 100-01 Investment incentives, see Tax shelters Investment income, see Interest; Dividends 352 KPMG_E_2014.indb 352
Investment portfolio, incorporating, 218-19 Investment strategy, 5-7, 292 Investment tax credit, 178 of partnership, 179 Investments, Chapter 7 asset allocation, 5-7 limitation on expense deduction (Quebec), 245 on reaching retirement, 292 Job loss payment on, see Retiring allowance Joint filing (U.S.), 250-51, 264-65 Joint partner trust, 313, 317-18 Kiddie tax, 79-80 LIF, see Life Income Fund LLC, see Limited liability corporation (U.S.) LRIF, see Retirement planning, Life Retirement Income Fund Labour-sponsored venture capital corporation, 52-53 Land (see also Real Estate) cost of improving, deduction for farming business, 224 Late payment of tax interest on, 137-38 Taxpayer Relief rules, 140 voluntary disclosure, 141 Lease payments on automobile limitations on, 191, 193-94 Leaving Canada, see Emigration Legal fees, 32-33 to adopt a child, 22, 239-40 to change spousal support amount (Quebec), 247 to obtain pension benefits, 160 to obtain severance pay, 160 to recover unpaid wages, 160 Lesbian couple, see Same-sex couple Life annuity, 301 Life income fund (LIF), 51, 302-03 Life insurance, 320-21 contract, exempt, 113-14 gift of, to charity, 128-29 pension plan, 293-94 planning, 12-13 premiums, 320-22 non-deductible, 321 taxable as employment benefit, 148 proceeds not taxable, 321, 327 retiree, 293-94 shareholders agreements, 217-18, 323 succession of business, 322-23 U.S. estate tax, 270, 280-87 Lifelong Learning Plan, 57, 204-05 Limited liability corporation (U.S.), 278 Limited partnerships, 117-18, 285 Line of credit, 12 Livestock drought-induced sale, 224 Loan automobile, 151 business assets, to spouse, 83 from shareholder, 211-12 home purchase, 150-51 student loan, interest on, 24 to adult family member, 80 to corporation by shareholder, 211-12 to employee, 149-51 to spouse, 76-78, 83 Locked-in RRSP, 51, 302 Losses business, see Business: losses capital, see Capital losses Loyalty points employment benefit, 146 Lump sum retroactive payment, 27-28, 59, 157-58 Maintenance (of rental building), in Quebec, 246 Maintenance (spousal), see Spousal support payments Marginal tax rates, Appendix I Canada, 16, 76 353 KPMG_E_2014.indb 353
KPMG Tax Planning for You and Your Family 2014 United States, 250 Marital breakdown, 27-29 deduction for legal fees, 27-29, 32-33, 247 Meals limitation on expense, 175-76, 244 subsidized by employer, 146, 147 Medical expenses, 29-31, 242-43 Minimum tax, 118-21 calculation of, 119-20 carryover, 120 death, year of, 327 planning tips, 120 U.S. citizens, 262 Modified accrual method of accounting, 229-30 Mortgage deductible as home office expense, 176-77 financing assistance on relocation by employer, 198 interest, 3, 110-11 non-deductible, 3, 110-11 non-recourse, 283 planning, 10-11, 67 reverse, 293 Moving, Chapter 13 allowance from employer, 197-98 deduction for, 195-98 expenses, 195-98 from Canada, 199-205 home purchase loan, 150-51 reimbursement by employer, 197-98 students, 197 to Canada, 198-99 U.S. treatment of expenses, 259 Musician expenses, deduction for, 161 instruments, deduction for, 161 Mutual funds, 112 child, funding education with, 8-9 Net capital loss, carryover, 93 Net family property, see Family law Net income, 15 Net worth statement, 3, 291 NETFILE, 132-33, 138, 139 Non-capital losses, 180-81 Non-recourse mortgage, 283 Non-resident becoming, see Emigration ceasing to be, see Immigration to Canada TFSA, 66 trust, 115 Northern Canada employees, special deduction, 33, 161-62 Notice of Objection, 141-42 Objection, see Notice of Objection Office at home, 159-60, 176-77, 244 Old Age Security, 297-300 benefits received by U.S. resident, 298 clawback, 297-98, 299 integrated pension, 300 Operating cost benefit, 187-88 Options capital gains on, 102 stock option plans, 151-55 Overcontribution to RRSP, 51-52 to TFSA, 64, 65 Overseas employment, 158, 245 Overtime meals, 147 Owner/Manager, see Business; Corporation Painting, donation of, 126-27, 128, 242 Parental Insurance Plan (Quebec), 243 Parents (see also Dependants) credit for housing (Quebec), 241-42 Part IV tax, 108, 218-19 Partner (see also Partnership) club dues, 232 death, 233-34 deductibility of interest paid by partnership, 231 emigration, 233 RRSP contribution, 232-33 354 KPMG_E_2014.indb 354
retired, 231-32, 233-34 Partnership adjusted cost base of, 179-80 allocation of income among partners, 179 assessment of, 180 capital gains of, 179-80 club dues, 232 corporate, 216-17, 231-34 farming, 227-28 GST rebates to partners, 180 how income is taxed, 178-79 interest, capital gain or loss on, 179-80 interest deductibility, 231 investment tax credits of, 179 limited, see Limited partnerships payments to retired partners, 231-32 professional, 231-34 with spouse, 83 Pay yourself first plan, 4 Payment of tax, 133-36 amounts in dispute, 143-44 electronic tax payments, 136 instalments, 134-36, 236, 265-66 late, interest on, 137-38 source withholding, 133-34, 148-49 Taxpayer Relief rules, 140 voluntary disclosure, 141 Payroll taxes, 168-69 Pension adjustment (PA), 40-41 Pension adjustment reversal (PAR), 40-41 Pension income, 295-300 credit for, 299 lump sum retroactive payment, 59 phased retirement, 294-95 splitting, 299 Pension plan, see Registered Pension Plan (RPP) Person living alone (Quebec), 237 Personal-use property, 101-02 Phantom stock plan, 154-55 Physician, see Professionals Political contributions, 31, 242 Post-mortem planning, 326 Power of attorney, 13-14, 309, 316-17 Pre-1972 property capital gain on, 102, 260 Preferred beneficiary election, 315 Preferred shares, 105-07 Prescribed interest rate, 137-38 Principal residence exemption, 99-100 emigration, 203-04 U.S. citizens, 261 Private health services plan, see Employees: benefits Probate fees, 311-13, 316, 317, 325 Professional advisers, selection of, 14 Professionals, Chapter 16; see also Self-employed club dues, 232 incorporated, 230 modified accrual method of accounting, 229-30 professional dues, 160 professional partnership, 231-34 Profit (see also Business) expectation of, 180-81, 221-22 Profit-sharing plan, 155-56, 255-57 Property (see also Capital gains) gift of, to charity, 126-28 income from, 83-84 reporting rules for emigrants, 202-03 tax on sale of, 99-100, 261 Provincial family law, 308-09, 311, 325 Provincial income tax calculation of, 16 Quebec, Chapter 17 rates, Appendix I surtax, 16, 17 Provincial sales tax, 170-71 Purchase of inventory for farmers, 223-24 QDOT, see Qualified domestic trust (U.S.) 355 KPMG_E_2014.indb 355
KPMG Tax Planning for You and Your Family 2014 QPP, see Quebec Pension Plan QST, see Quebec taxation Qualified domestic trust (QDOT) (U.S.), 281, 283 Qualified farm and fishing property, capital gains exemption, 96-97, 225-26 Qualified small business corporation shares capital gains exemption, 95-96, 208-09 Quebec Pension Plan assignment of benefits to spouse, 297 benefits, 295-97 benefits received by U.S. resident, 298 contributions, credit for, 33-34 planning, 295-97, 300 self-employed persons, 168-69 Quebec taxation, Chapter 17 adoption expenses, 239-40 age credit, 240-41 automobile provided by employer, 186 CPP deduction for self-employed, 245 charitable donations, 242 deductibility of investment expenses, 245 differences from federal tax, 236 disabled persons, 243 dividends, 235-36 driver s log book of employee, 185-86 environment-friendly vehicle, 247 health contribution, 246 health insurance, paid by employer, 243-44 Health Services Fund contribution, 246 home office expenses, 244 home support for elderly persons, 241 infertility treatment, 239-40 instalments, 236 investment expenses, 245 meals and entertainment expenses, 244 medical expenses, 242-43 Parental Insurance Plan premium, 243 pension credit, 240-41 political contributions, 242 QPP deduction for self-employed, 245 QST credit on income tax return, 247 real estate tax refund, 247 relatives, credit for housing, 241-42 rental expenses, documentation, 246 self-employed, CPP/QPP deduction for, 245 solidarity credit, 247 tax rates, 235-36, Appendix I youth activities credit, 239 RDSP, see Registered Disability Savings Plan RESP, see Registered Education Savings Plan RPP, see Registered Pension Plan RRIF, see Registered Retirement Income Fund RRSP, see Registered Retirement Savings Plan Rates of tax, see Tax rates Real estate losses from rental properties, 181-82 rent from property in U.S., 277 tax refund (Quebec), 247 U.S. estate and gift tax, 280-87 U.S. tax on sale of, 278-79 Reasonable expectation of profit, see Profit Reassessment, 139-40 opening up return for other claims, 142 356 KPMG_E_2014.indb 356
time limit, 139-40 waiver of time limit, 139-40 Rebates of GST, see Goods and Services Tax (GST): rebates Recreational facilities provided by employer, 146 Refund of tax Direct Deposit of, 136 GST/HST, 169-70 interest on, 137-38 real estate tax (Quebec), 247 why not good planning, 149 Registered Disability Savings Plan, 73-74 Registered Education Savings Plan (RESP), 8, Chapter 4 Canada Education Savings Grants, 8, 69-71 contribution limit, 68 emigration, 205 multi-beneficiary plan, 69, 72-73 payments from, 71-73 Quebec, 237 self-directed, 69 versus TFSA, 67 Registered Pension Plan (RPP), 58-60 contributions by employer non-taxable, 145 Individual Pension Plan (IPP), 60-61 insurance coverage under, 293-94 integrated pension benefits, 300 phased retirement, 294-95 small business owners, for, 218 survivor s benefits, 293-94 transfer to RRIF, 59 U.S. taxation of, 255-57 vesting of benefits, 60 Registered Retirement Income Fund (RRIF), 301-03 death of planholder, 326-27, 331-32 excess income and TFSA, 303 RRSP wind-up, 300-03 transfer to, 59 Registered Retirement Savings Plan (RRSP) age limit, 300 anti-avoidance rules, 57-58 borrowing contribution funds, 48 closing out, 300-03 contribution at age 71 or after, 300 contribution limits, 38-41, 232-33 death of planholder, 51, 331-32 early withdrawals, 49 earned income, 38-39, 232-33 education financing, 22-25, 57 fees, 47 getting money out of, 48-49 Home Buyers Plan, 10-11, 26-27, 53-57 Lifelong Learning Plan, 57 locked-in, 51, 302 maturity, 300-03 overcontribution to, 51-52 partner, of individual, 232-33 pension adjustment (PA), 40-41 pension adjustment reversal (PAR), 40-41 planning tips, 47-48, 66-67, 302-03 retiring allowance, transfer to, 51, 157-58 self-directed, 43-48 setting up, 38 spousal, 50 students, withdrawals by, 57 TFSA, 66-67 tax-free growth, 42-43 transfers to and from, 51 U.S. taxation of, 255-57 what happens to the funds in, 42-43 winding up, 300-03 Reinvestment of interest, 83-84 Relocation assistance payments, 197-98 Relocation expenses, see Moving: expenses Rent from U.S. real estate, 277 357 KPMG_E_2014.indb 357
KPMG Tax Planning for You and Your Family 2014 Rental expenses, documentation required (Quebec), 246 Repayment of capital, 112-13, 213 Reporting rules emigration, 202-03 foreign investment property, 114-15, 132 U.S., 266-67, 270 Reserve capital gains, 98-99, 227 Residence, see Principal residence exemption Resident in Canada becoming, see Immigration ceasing to be, see Emigration Resident in U.S., 273-75 expatriating from U.S., 271-72 Restricted farm losses, 221-22, 225 Retired partner death of, 233-34 emigration, 233 income payment to, 231-32 RRSP contribution, 232-33 Retirement compensation arrangement, 156-57, 255-57 Retirement planning, Chapter 20 (see also Registered Retirement Savings Plan, Registered Pension Plan) age credit, 240-41, 299 annuity, 301, 302-03 asset sales, 292-93 Canada/Quebec Pension Plan benefits, 295-97, 300 cash flow statement, 291 cross-border planning, 303-05 integrated pension, 300 investment strategy, 292 life income fund, 51, 302 life retirement income fund, 51, 302 Old Age Security, 297-98, 300 pension credit, 299 phased retirement, 294-95 RRSP maturity, 300-03 Registered Retirement Income Fund, 301-03 saving for, 289-91 social security (U.S.), 298 splitting pension income, 299 U.S. citizens, 303-05 Retiring allowance (including severance pay, termination pay) legal fees, 158, 160 lump-sum retroactive payment, 157-58 taxable, 157-58 transfer to RRSP, 51, 157-58 Rights or things return, 330 Rollover farming property to children or grandchildren, 226-27 investment in small business, 100-01 property transferred to corporation, 96 property transferred to spouse, 76-78 Salary from own corporation, 211, 215 of employee, Chapter 10 to spouse or child, 82, 215 Salary deferral arrangement, 155 Salary/dividend mix, 215 Sale of a business, 219-20 Sales person, see Commission sales person Sales tax credit federal, see Goods and Services Tax (GST) Quebec, 247 Sales tax rates, 171 Same-sex couple, 18 Section 85 rollover, 96 Self-directed RRSP, 43-48 Self-employed, Chapter 11 (see also Business) Selling a business, 219-20 Separation from spouse, 27-29 Severance pay, see Retiring allowance 358 KPMG_E_2014.indb 358
Share appreciation rights, 153-54 Shareholder agreement, 213-14, 323 Shareholder appropriation, 214-15 Shareholder loan from corporation, 151, 213-14 to corporation, 211-12 Shares capital gains exemption on, 95-98 dividends on, see Dividends donation to charity, 126-28 preferred, 105-07 security for departure tax, 200-02 small business corporation, 95-96, 208-09 Shelters, see Tax shelters Simplified accounting (GST), 171-73 Simplified method, moving expenses, 196 Single purpose corporation, 285 Small business, capital gains rollover for investment in, 100-01 Small business corporation allowable business investment loss on, 94-95, 97 capital gains exemption on, 95-98 cumulative net investment loss (CNIL), 97-98, 246 meaning of, 95-96 pension plan for owners, 218 qualified, 95-96, 208-09 Social insurance number, 71, 74 Social security, U.S., 298 Solidarity credit (Quebec), 247 Source withholdings credited on tax return, 133 RRSP withdrawal, 48-49 reduction of, 148-49 when required, 133-34 Spousal RRSP, 50, 85-86, 326-27, 331-32 Spousal support payments, 27-29, 247 Spouse/partner attribution rules, 76-78 common-law, 18 consulting fees to, 82, 215 credit for, 17-18 gift to, 76-78 investment base, increasing, 81-82 joint return (U.S.), 250-51, 264-65 loan to, 76-78, 83 marital credit (U.S.), 282 partnership with, 83 paying taxes for, 81-82 qualified domestic trust (U.S.), 281, 283 RRSP for, 50, 85-86, 326-27, 331-32 salary to, 82, 215 same-sex, 18 separation from, 27-29 survivor s benefits, 293-94, 296-97, 326 TFSA for, 82 transfer of dividends, 108 transfer of property to, 101 trust for, 314-15, 328-30 Standby charge, 186-87 Stock bonus plan, 154 Stock dividend, 107 Stock option plans, 151-55 Canadian-controlled private corporations, 153 deferral for public company shares, 151 phantom stock plan, 154-55 regular plan, 151-52 share appreciation rights, 153-54 stock bonus plan, 154 stock purchase plan, 154 underwater stock options, 152-53 Stock purchase plan, 154 Strip bonds, 45, 110 Students, 22-25 child care expenses of, 24 credits for, 22-25 interest paid on student loans, 24 moving expenses, 197 Quebec, 240 RRSP withdrawals, 57 359 KPMG_E_2014.indb 359
KPMG Tax Planning for You and Your Family 2014 Succession of business, planning for, 322-23 Succession of wealth, planning for, 323 Superficial loss, 102 Supplemental retirement plan, 156 Supplies payable by employee, deductible, 159-60 Support payments, 27-29 legal fees, 27-29, 32-33, 247 Supreme Court of Canada, appeal to, 143 Surtax, provincial, 17, Appendix I Survivor s benefits Canada/Quebec Pension Plan, 296-97, 326 Registered Pension Plan, 293-94 TFSA, see Tax-Free Savings Account Tax avoidance, see Anti-avoidance rules Tax convention, see Canada-U.S. tax treaty Tax Court of Canada, appeal to, 142-43 Tax credits, see Credits Tax deferral plans, Chapter 3, Chapter 4 Tax equalization payment, 198 Tax-Free Savings Account (TFSA), 4, 9, 63-67, 291, 292-93, 303 anti-avoidance rules, 65 contribution limit, 64 death, 65, 327, 332 in retirement, 291, 292-93, 303 non-resident, 66 overcontribution, 64 penalties, 65 planning, 66-67 qualifying investments, 65 seniors, 67 spouse, 82 withdrawals, 64-65 Tax rates, Appendix I corporate, 208 GST and HST, 171 personal, 16, 76, Appendix I provincial sales taxes, 171 Quebec, 171, 235-36, Appendix I U.S. estate tax, 269-70, 281-82 U.S. income tax, 250 Tax return EFILE, 132-33, 138, 139 filing deadline, 131-32 NETFILE, 132-33, 138, 139 U.S., 264-65 Tax shelters, 116-18 aggressive tax planning, 117 capital gains rollover for investment in small business, 100-01 identification number, 116-17 labour-sponsored venture capital corporation, 52-53 limited partnerships, 117-18 minimum tax effect, 116, 118-21 Tax treaty, see Canada-U.S. tax treaty Taxable benefits, see Employees Taxable Canadian property, 201 Taxable income, 15 Taxpayer Relief, 140 Termination pay, see Retiring allowance Testamentary trust, 314-15, 316 Textbook credit, 23 Tools capital cost allowance, 174 deduction for, 161 Top-hat retirement plan, 156 Transit pass credit, 31-32 given to employee, 147 Transportation expenses, see Travelling expenses to job by employer, 146 transit pass, 31-32, 146 Travelling expenses (see also Automobiles) business, 175 employees, 159 transit pass, 31-32, 146 Treaty, see Canada-U.S. tax treaty 360 KPMG_E_2014.indb 360
Trusts, 313-18 alter ego trust, 315, 317-18 charitable remainder trust, 129-30 income splitting tax on certain income of minor children, 79-80 joint partner trust, 315, 317-18 non-resident trust, 115 U.S. reporting rules, 270 Tuition fees, 22-23, 240 USA, see United States Underwater stock options, 152-53 Uniform required for employment, 146 Union dues, 160, 244 United States alternative tax for U.S. citizens in Canada, 262 capital gains taxation, 259-62 children, income earned by, 263-64 citizens in Canada, Chapter 18 cross-border retirement planning, 303-05 deductions, 254-55, 263 dividends, 257 employment income from, 275-77 estate tax, 267-70, 280-87, 332 expatriating from, 271-72 gift tax, 268-69, 270-71, 287 investment in, Chapter 19 limitation on deductions, 254-55 limited liability corporation (U.S.), 278 moving expenses, 259 real estate in, Chapter 19 residence in, 273-75 retiring in, 303-05 social security received by Canadian resident, 298 unearned income Medicare contribution tax, 251 working in, 275-77 Universal Child Care Benefit, 9, 19, 87 University fees, 22-23, 240 Vacation property financial planning tips, 11-12 principal residence exemption, 99-100 provided to employee, 148 Venture capital corporation, labour-sponsored, 52-53 Vesting of pension benefits, 60 Voluntary disclosure, 141 Volunteer firefighters credit, 158-59 Waiver of late filing penalties and interest, 140 Waiver of reassessment period, 139-40 Wealth, planning for succession of, 323 Wife, see Spouse/partner Withholding certificate on sale of U.S. real estate, 278-79 Withholding tax on employment income, see Source withholdings Work in progress special rule for professionals, 229-30 Working Income Tax Benefit, 158 Working outside Canada, see Overseas employment Writer, see Author Wrongful dismissal award, see Retiring allowance Year-end for business, 167 for corporation, 183 for professional corporation, 230 361 KPMG_E_2014.indb 361